CBSE Class 11 — Notes, Chapters & Practice Quizzes

Chapter 2: Forms of Business Organisation

Summary

When starting or expanding a business, an important decision is the choice of the form of organisation, weighing the merits and limitations of each. The main forms are sole proprietorship, joint Hindu family business, partnership, cooperative society and joint stock company. A sole proprietorship is owned, managed and controlled by one individual who bears all risk and gets all profit; it offers ease of formation, quick decisions and confidentiality but suffers unlimited liability, limited resources and lack of continuity. A joint Hindu family business, found only in India, is owned by members of a Hindu Undivided Family by virtue of birth and controlled by the eldest member, the karta, who alone has unlimited liability while the co-parceners have limited liability. A partnership, governed by the Indian Partnership Act 1932, is the relation between persons who agree to share the profits of a business carried on by all or any of them acting for all; its features include unlimited liability, mutual agency and a partnership deed, with various types of partners and optional registration. A cooperative society is a voluntary association formed for mutual welfare, with compulsory registration, limited liability, democratic control and a service motive. A joint stock company is an artificial person created by law with a separate legal entity, perpetual succession, limited liability and transferable shares, and may be private or public. The choice depends on cost, liability, continuity, management ability, capital and control.

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